Select Committee on Environmental Audit Memoranda


Memorandum from the Country Land and Business Association

  1.  The CLA welcomes the opportunity to give evidence to the Environmental Audit Committee on the subject of renewable energy. We represent some 50,000 landowners, who between them own around 5 million hectares of rural land in England and Wales. Many of our members have farm businesses, and are therefore, energy users, other members are involved with the production of renewable energy, with woodland management, and others own land that will be affected by climate change, and even, in some cases, threatened by future flooding from the effects of global warming.

  2.  The CLA welcomes the commitment expressed by Government to renewable energy. As the representative body of land based businesses, we are deeply concerned as to the potential long term effects of climate change. We also look to the potential beneficial effects on land use and bio-diversity from the widespread introduction of energy crops and making better use of existing woodlands. Equally importantly, we recognise the potential for embedded generation and local heat markets to regenerate fragile rural economies and to provide opportunities for diversification and new jobs to replace those lost in traditional agriculture.

  Our concerns are threefold:

    —  First, that the policy objective is flawed. By introducing an explicit limitation on the cost of renewable energy to consumers, the argument is unbalanced. Conventional energy producers impose huge costs on consumers through their contribution to global warming. Conventional patterns of electricity production and distribution have also caused huge damage to the landscape from the introduction of long distance power lines. Unless these costs are specifically factored into the costs of conventional energy, consumers will be mislead into thinking renewable energy is "expensive".

    —  Second, whilst we welcome the proposal to achieve 10 per cent of the UK electricity requirements from renewables by 2010, this concentration on the electricity market (which only represents some 32 per cent of the total energy use in the UK) falls far short of the holistic solutions which the CLA and others have consistently recommended to Government. The CLA calls for further consultation on the measures necessary to improve the takeup of renewable energy in the heat market (which constitutes 45 per cent of the share of primary energy demand) as a matter of urgency.

    —  Third, the CLA is concerned that the policy instruments set out in the document fall short of what is required, in our view, in order to ensure the policy objectives can be met.

  3.  The CLA has welcomed the Government's approach to renewable energy, and the resources that are proposed to be devoted to it. However, we have grave reservations about the detail of many aspects of the new programmes, which are set out below in our answers to the questions set by the Environmental Audit Committee.

Are the Targets Properly Formulated and Achieveable

  4.  In a word, no. The Government has set out proper and potentially achieveable targets for the production of renewable electricity, representing some 32 per cent of energy used in the UK. However, we have seen little in respect of the heat market, which accounts for 45 per cent of all energy consumed.

  5.  The CLA welcomes the target of 5 per cent of electricity from renewable sources by the end of 2003, rising to 10 per cent by 2010, but rejects the crude mantra that such development must be subject to the costs to the consumer being acceptable. The CLA views the effects of climate change with concern, and suggests that electricity consumers who have suffered flooding this autumn, those who live in low lying areas facing coastal set-back, and those who face losses from extreme weather should have a voice.

  6.  It is, in our view, quite improper to fail to address the issue of heat usage, and we urge the Committee to look at this issue in detail. Responsibility for sponsorship of the issue falls between two Departments (DETR and DTI), and whilst some acknowledgement of the concerns may be covered by tax allowances funded from the climate change levy, there is, in our opinion, considerably more that could and should be done.

  7.  At the same time, DTI appears to have set its face against the proposal that the proposed renewables obligation for electricity should be banded, which the CLA believes to be a mistake. The CLA considers the huge potential benefit to the countryside from a widespread adoption of biomass energy cropping and production should also, in our view, be explicity recognised in the targets.

  8.  The CLA welcomes the intention expressed in renewable energy policy to ensure that embedded generators are given the benefit of avoided costs within the system. However, we are concerned that it has not yet been demonstrated how this may successfully be achieved, nor how monopolistic owners of electricity networks can be required to make available opportunities for renewable generation within the system.

  9.  We remain concerned that the regulatory structure for electricity networks owned by RECs incentivises capital investment in new power lines, rather than holistic approaches including embedded generation.

  10.  Embedded generation, especially small scale embedded generation, has potential for rural development and sustainable jobs and income in the countryside. It is important that the reform of the electricity market provides mechanisms that facilitate these benefits.

  11.  Embedded generation has the potential to avoid both large and small scale development of transmission lines. In many cases (the North Yorks Picton—Shippingly proposal) such transmission lines do enormous harm to the landscape. In many others they are unwelcome on the grounds of amenity and concern for potential health risks. Proper planning for embedded facilities within the network will confer benefits to amenity by reducing the demand for unsightly overhead wires.

  12.  This has implications for DTI Section 36 consents and for DETR guidance on planning consent and overhead lines. The CLA recommends that developers of new power lines should be required by consenting authorities to undertake a test before being granted consent. Developers should show that provision of an embedded generation facility at a key point would not answer the need for reinforcement or a new overhead transmission line.

  13.  There is a further issue on the question of openness in relation to the monopoly powers enjoyed by RECs. Prospective embedded generators need access to information in order to ensure that connection prices and embedded benefits are properly assessed. The Regulator will have a key role in ensuring this.

  14.  Further, there is a wider role for Government in ensuring the general public are aware of the significance of renewable energies. There is much R&D and many themes that would find a wider audience if promoted: the Central Office of Information may have a role here.


  15.  Regrettably, whilst the overall target for reduction in greenhouse gas production appears to have been met to date, this is as a result of the continuing switch from coal production to combined cycle gas fired power stations and the input of nuclear power rather than from increased production of renewable energy.

  16.  Government policy development and the new instruments to deliver renewable electricity have been held up since the start of the new administration by the proposals to revolutionise the electricity market (the New Electricity Trading Arrangements or NETA) and the consequential measures.

  17.  DTI abandoned the previous NFFO support mechanism, sponsoring only one round of bidding since the election (NFFO, 5 July 1998), without having any replacement mechanism in place. Even now it seems that the first Renewables Order under the new arrangements will not be made for at least six months.

  18.  There has been considerable concern from renewables generators seeking planning consents for new developments for over five years. Complaints, including some truly disturbing statistics and wholly misinformed comments by planning inspectors, led for calls for Government to address the issues.

  19.  Only at the end of 2000 was a project set up to look at the regional renewable resource base, which has yet to report. Given that regional development agencies have all now completed, or nearly completed their plans, it will not be until the next review that the information is able to inform regional planning. Even then, development control decisions will be made in accordance with guidance in PPG 25 and existing local plans unless urgently reviewed.

  20.  Until the planning framework is altered to take proper account of the need to develop renewable energy, applicants for planning consent will continue to face an uphill task.


  21.  The CLA fully expects the DTI to disappoint all those who have an interest in the promotion of biomass energy. A note setting out our analysis and the predicted outcomes is attached at Annex 1.

  22.  The grant aid proposed for the support of the offshore wind industry is likely to be effective, providing the sums are made available as indicated. However, capital grant aid is not a sustainable solution for biomass production, as it has a different cost structure.

  23.  All renewable energy producers will require that the renewables order when made offers the opportunity to make "bankable" contracts with electricity purchasers. Without this, development finance will not be made available.

  24.  There is evidence to suggest that electricity purchasers are seeking a large proportion of the benefits that DTI have factored into their estimations of returns to producers. Whilst it is never the first option for regulators to intervene in contracts made in the market, it is suggested that this is an area that needs careful watching. Unless bankable contracts are available, the development of new renewable energy will not meet targets.

  25.  The CLA calls for Government to recognise the advice provided by its own renewable energy expert resource, ETSU, that financing renewable energy projects calls for long term solutions. The hands off market approach to the development of renewable energy described in the consultation paper is flawed.

  26.  The introduction of a buy-out price effectively puts market power in the hands of the licensed supplier. In such circumstances, there is no incentive for suppliers to make long term contracts with renewable generators, except at prices that are very advantegous to them.

  27.  Accordingly, the best estimate is that only the very cheapest renewable energy producers will be able to find bank funding in these circumstances, and there will be no funding for R&D of any kind. There may be some new renewable generation capacity created by very large companies who have the ability to finance from their balance sheets, but even this source of finance is likely to be limited by shareholder concerns unless generators can achieve a better proportion of the price available.

  28.  Members of British Biogen have reported that electricity suppliers have suggested discounts of more than 50 per cent on the total sums available under the proposed policies in return from long term contracts.

  29.  The solution proposed by the CLA is that:

    1.  The Obligation should require suppliers to offer long term contracts with price indexation.

    2.  The regulator should be empowered to intervene where parties can show evidence of unsustainable pricing or abuse of market power.

    3.  The demand profile should be calulated to ensure a continuous market shortage as against available renewable energy resources. This is necessary to ensure incentives for renewable developers to invest in new capacity.

    4.  The take up of the MAFF supported grants for planting energy crops should be kept under review as against the development of biomass power stations under the Obligation. Government should explicitly agree to review its position on dual banding in 2003, depending on the position then.

    5.  In the interim, enchanced capital grants under the Obligation together with fiscal measures under the Climate Change programme should be made available to biomass developers.

    6.  Government should take steps to ensure that the position of SMEs is not adversely affected by the New Electricity Trading Arrangements.

    7.  Government should urgently address the market failure where embedded generation benefits are captured by monopolistic RECs.

    8.  Ofgem should be empowered to become a purchaser of last resort for long term contracts where suppliers fail.

    9.  The changes to the planning system (set out below) should be introduced.

    10.  A new National Expert Energy Resource Centre should be funded.

  30.  The CLA recognises the arguments for excluding large scale hydro and energy from waste from the Obligation. However, there are considerable concerns that much biomass may be wrongly described as waste, and thereby fail to be included in the Obligation.

  31.  Definitions will be particularly important. The draft Renewable Directive offers a model definition of solid biofuels which the CLA commends to Government, as follows:

    —  products from agriculture and forestry;

    —  vegetable waste from agriculture and forestry;

    —  vegetable waste from the food processing industry;

    —  wood waste, with the exception of:

      —  wood waste that may contain halogenated organic compounds or heavy metals as a result of treatment;

      —  treated wood originating from building and demolition waste;

      —  cork waste.

  32.  However, as Government will recognise, the CLA does not accept that to reject dual banding on the basis that it amounts to "picking winners" and then for Government to pick the recipients of grant aid in order to mitigate the inevitable effect this decision will create for non converged technologies amounts to credible policy.


  33.  The CLA has struggled with the concept of "acceptable costs to the consumer". It is recognised that there is a real problem of energy poverty in the UK, not least amongst rural constuencies. However, best practice would be to ensure that the social security provisions for those in need were adjusted to meet any costs imposed by the renewables obligation.

  34.  The issue is not, in our view, whether the headline cost of a unit of renewable electricity is comparable with one produced from polluting power sources, but whether the overall costs to the consumer from not producing sufficient renewable energy are acceptable. Even if the 10 per cent of renewable energy required under the current proposals was to cost double the amount of conventional energy, the effect on overall consumer prices would be very small, and comparable with the reduction of VAT from which consumers have recently benefited.

  35.  Moreover, the additional benefits of embedded generation in saved transmission losses and reduced need for unsightly overhead power lines should, in our view, be factored into the equation.

  36.  The CLA considers that the polluter pays principle should be applied. Proposing limits to increased costs for renewable energy is wholly inappropriate on this basis. The purchasers of the greater amounts of energy are those who are contributing most to global warming, and price signals are the best mechanism to ensure that energy use meets the Kyoto commitments on greenhouse gas production.

  37.  That being said, there are clearly issues as to the economic competitiveness of the country as a whole. It would be inappropriate to require renewable electricity at any cost, without understanding the effects on industry and consumers, and the possible alternatives for securing reductions in emissions, such as renewable heat production and energy efficiency.

  38.  On balance, whilst the renewable energy requirement is limited to only 10 per cent of the market, we see no need for the mechanism provided for in the Utilities Act of a buy-out procedure. Indeed, such a procedure may be likened to the purchase of medieval "indulgences". The CLA, having consulted with renewable energy producers, is confident that 10 per cent of the electricity market can be reliably supplied without undue costs falling on consumers, provided the regulatory framework is right.

  39.  In the light of the buy-out procedure established in the Utilities Act, it is necessary to ensure that the buy-out cap prices are appropriate. It should be noted that capped prices are unlikely to paid in full, and that by no means the entire costs will pass through to the consumer. However, given the current make-up of the renewable sector, we propose a buy-out price of 5.5p for newer renewables.

  40.  The UK is a relatively wealthy country, with (save in the transport sector) relatively low fuel costs. In these circumstances, and with the potential for competition among renewable energy suppliers, it appears that the risks of not addressing climate change are greater than the risks that consumers may see a small increase in their electricity bills.

  41.  Moreover, as the use of conventional electricity is clearly a major contributor to greenhouse gas production, an increase in electricity prices to ensure the production of renewable energy follows the "Polluter Pays" principle.

  42.  Accordingly, the buy-out price under the Obligation should be set at a figure which ensures that the renewable generating capacity required can be created. The NFFO bid prices in the last rounds produced averages from 2.49p (energy from waste) to 5.79p (biomass). Given competition among generators, the vast majority of all renewable electricity produced will be purchased by suppliers at prices well below the theoretical maximum. The ability to borrow will mean that there will be very little recycling of buy-out monies. The CLA suggests that the appropriate buy-out figure in these circumstances should be 5.5p, to reflect the discounting evident in the market by suppliers.

  43.  Indexation of the buy-out price is welcome and necessary.

  44.  The DTI estimates of the costs of the obligation to the consumer are exaggerated. By no means all of the energy produced will be sold at the buy-out price. Even were it to be so, it would still represent a very modest cost for what is a relatively wealthy nation.

The Impact of the Reform of the Electricity Market (NETA)

  45.  It appears that NETA will adversely affect the ability of renewable operators to achieve finance, especially in the area of wind power. The added costs to SMEs, and in particular SMEs involved in the production of intermittent energy, will be, in many cases, a sum greater than the benefit achieved by exemption from the Climate Change levy.

  46.  It is suggested that support be provided by way of grant aid to set up renewable energy trading co-operatives, who would then be able to aggregate the output of their members on a not-for-profit basis. Without this assistance, it seems likely that market intermediaries will capture a disproportionate amount of the returns to renewable energy generators.

  47.  Certainly, NETA adds trading costs to companies, particularly when compared to the simplicity of pricing for non pool generators under the existing system.

The Level of Government Spending on Renewables Related R&D

  48.  The guarantees to existing NFFO contract holders are a necessary and welcome expenditure, which must be maintained until all the contracts have come to an end. Equally, existing support for the DTI research undertaken by ETSU is welcome.

  49.  No new R&D expenditure has yet been made in the area of renewable energy generation, despite several announcements.

  50.  The amount proposed for the support of non convergent renewable technologies (£75 million) may provide a necessary kick start for offshore wind, but even ETSU has been unable or unwilling to say how many biomass power stations will benefit therefrom.

  51.  The CLA has consistently argued that providing support for non convergent technologies through a banded obligation would transfer the costs of R&D from scarce Government resources to the consumer, through a market based mechanism that would in itself ensure value for money.

The Level of Government Support for Non-fossil Fuels for Electricity Generation Over Time

  52.  Regrettably, it appears that support of one kind another will be required until the external (environmental) costs of burning fossil fuels are fully internalised.

  53.  Such support is the price necessary to continue with the existing cheap fuel policy. Without it, Kyoto commitments cannot be met.

  54.  The MAFF support for energy crops is very welcome, but without support for biomass power stations which are required to purchase the crops produced, is likely to be less than wholly successful.

The Interaction of the Planning System and the Development of Renewable Resources of Power Generation

  55.  There are real and growing problems with achieving planning consent for renewable energy developments in almost all areas. The DETR has itself refused consent on appeal for 12 out of 14 windfarm proposals in the last three years. Local Planning Authorities have recently refused consent for a proposed biomass plant in Wales, and other renewable developers report very significant costs and delays building up throughout the planning process.

  56.  The regional energy strategy proposed by Government, whilst welcome, needs further specific bolstering in order to become fully effective. Regional targets should be based on a best estimate of potential within each region for its contribution to the overall target for greenhouse gas reduction, and require that renewable resources are allocated physical targets within that framework. Each region should be required to make a contribution to the overall national target of not less than the estimated energy use within that region.

  57.  The regional strategy will need to be linked to Planning Policy Guidance, so as to produce a presumption in favour of consent for renewable energy developments up to the targeted renewable energy output unless substantial harm to interests of acknowledged importance can be demonstrated.

  58.  Firstly, that any new regional renewable energy targets will either need to be imposed on the ongoing regional planning consultation process, or it will not come into effect until regional plans are reviewed in five years' time (too late to meet the Government's targets for greenhouse gas reduction).

  59.  Secondly, whilst renewable developers are making strenuous efforts to build relationships with local communities (in accordance with best practice guidelines which were prepared by ETSU in consultation with representative groups including the CLA), there is an enormous weight of ignorance and prejudice about the whole subject of climate change and the relative costs and benefits of addressing the issue, and further detailed concerns about the effect of the technologies on local areas. Independent experts such as the planning inspector in the recent Barningham Moor windfarm appeal opine that the energy benefits of wind power are "insignificant", and that pollution savings are "uncertain". In other cases, local planning officers have commented "there is much debate both locally and nationally as to just how effective power generation from biomass is in assisting the reduction of air pollution", going on to say "wood as a fuel is neither clean nor green, just a renewable energy resource". Whilst the CLA would not wish to judge whether the outcome of the Barningham Moor appeal was the correct one in all the circumstances, such comments go to the heart of Government policy for renewables.

  60.  It is unrealistic in our view to expect that policy for the delivery of renewable energy can be delivered in these circumstances.

  61.  Accordingly, the CLA calls for two further policy instruments, in addition to the regional targets, in order to deal with the constraints, as follows:

  1.  Revised Planning Policy Guidance Notes

  It is clear from experience that PPG22 is not performing. It fails to provide appropriate signals about the national importance of renewable energy development, and to deal the the status of the advice to be sought from expert statutory consultees as against that offered by NGO lobby groups, which is seldom balanced or scientific. A wholesale revision is called for.

  At the same time, PPG23 might usefully better address the relationship between emission controls, which in our view should be left to the statutory regulator, and planning considerations.

  2.  A new national Expert Energy Resource Centre

  The Government should, in our view, be considerably more proactive in promoting its policies for renewables, and be prepared to support its policies with expert evidence made available to inform the public, and Local Planning Authorities on the issues.

  Accordingly, the CLA calls for the establishment of an expert energy resource centre, that would supply clear and unbiased experience in reader friendly format on a range of renewable energy issues, including:

    (a)  Government policy on renewable energy development;

    (b)  the relationship between pollution control and planning control in the context of future emissions;

    (c)  the role of the Environment Agency in protection of the environment and control of emissions;

    (d)  the results of research into the costs and benefits (including environmental costs and benefits) of renewable energy.

  Revised Planning Policy Guidance should refer Local Authorities to the resource centre for advice and require that due weight be given to the independent evidence provided.

  Such an resource center might form part of a new Renewable Energy Agency or be developed either as a stand-alone unit, or as a sister to ETSU.

March 2001

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